What is LIBOR and why do we use it?
LIBOR stands for London Interbank Offer Rate. It’s London’s equivalent of the Federal Funds Rate, the rate where banks lend overnight or short term to other banks. Just like the Prime Lending Rate is used with US banks for the establishment of their lending rates, LIBOR is used in the UK and frequently in other areas like parts of Western Europe.
Our primary funding resource is based in Western Europe so most of their payments out and payments in are based on LIBOR. Thus, our rates are based on LIBOR. LIBOR has rates for 1 month, 3 months, 6 months, and 1 year. We use the 3 months (90 day) index.
Today, 90 day LIBOR is at 0.28% and since our rates are based on a premium of 25-250 basis points (.25%-2.50%) over 90 day LIBOR that means clients are getting rates starting at 0.53% with a max of 2.78% over 3 yrs.
Stu
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